Plummeting oil prices have caused the North Sea Oil industry to become a burden on the taxpayer, rather than the important asset it once was.
In his Budget announcement on Wednesday, Chancellor George Osborne announced a draft of measures including tax breaks designed to give the now struggling industry a leg up.
Back in 2012, according to the Office for Budget Responsibility, UK oil companies contributed as much as £11 billion in tax revenue to the Treasury. This year, they will contribute nothing; next year, and right up until 2021, they will be running at a loss to the taxpayer of £1.1 billion annually.
Changes affected in order to prop up the industry include the halving of a supplementary charge that oil companies face – dropping from 20% to 10% – backdated so as to be effective from January 2016.
Further changes include the effective abolition of petroleum revenue tax, which was already cut from 50% to 35% last year.
Then there is the corporation tax cut affecting all businesses. Corporation tax, which currently sits at 20%, will be scaled down to 17% over the next four years.
The OBR spoke somewhat forebodingly about the effects these changes may have, claiming that not only will tax cuts cause a burden to fall on the shoulder of the taxpayer, but that further costs coming from what will likely be necessary decommissioning of platforms will only make it worse.
“Payments of offshore corporation tax and petroleum revenue tax will be lower and are likely to be dwarfed by repayments relating to decommissioning costs.”
The changes were made against the backdrop of a Budget focused around improving infrastructure for the future, protecting jobs and ensuring that our economy stays rigid enough to survive a global storm.
The oil industry in particular has suffered as prices per barrel have plummeted to rest now at $40, having been as high as $150 not much more than 18 months ago.
Osborne said: “The oil and has sector employs hundreds of thousands of people in Scotland and around our country. In my budget a year ago, I made major reductions in taxes, but the oil price has continued to fall so we need to act now for the long term.”
Acting for the ‘long term’ was something Osborne stressed again and again as driving much of his decision making in setting out this latest Budget.
The focus on jobs in Scotland comes after Osborne had been urged by Scottish Deputy First Minister John Swinney to act soon in order to save Scottish jobs in the oil and gas sector.
However, Kezia Dugdale, Scottish Labour leader, found that Osborne’s reforms didn’t go “nearly far enough”.
She said that “what we needed to see from the Chancellor today was support to make sure that essential infrastructure such as platforms and pipelines are not decommissioned early”.
Osborne, despite figuring these changes as largely supporting the Scottish workforce, nonetheless took the opportunity to make sure it was made clear that such changes were only possible “because of the broad shoulders of the UK”.
Naturally, the lobbying group Oil and Gas UK were in full support of Osborne’s measures, which they described in borderline bucolic terms as “a jolly good shove in the right direction.”
Also unsurprisingly, green campaign groups criticised the tax breaks, arguing that they simply reinforce damage done to the renewables industry by the successive severing of subsidies across the board.
The Renewable Energy Association’s chief executive, Nina Skorupksa, said: “if the government are serious about their national and international commitments, they need to back up the empty rhetoric with real actions” – something she argues has not been done.
The Chancellor maintained though that all of this was done in the interest of protecting what he described as a key industry for the country, and in the interest of improving overall economic and productive stability in the face of what he described for not the first time as “a cocktail of risks” surrounding the global economy.